Healthcare: a simple solution

Why is healthcare a problem in the United States?

There are people who do not have health insurance and end up bankrupt when they get sick. They do not have insurance either because it isn’t provided by their employers, they can’t afford it, or they’ve been denied coverage due to pre-existing conditions.

Why is health care so expensive here?

There are manymanymany theories. It isn’t because we consume more health care. It isn’t that we get sick more often. Prices are higher because they aren’t regulated. Prices for drugs and standard procedures vary widely based on prices negotiated by insurance companies, with the uninsured paying the most.

What’s your easy fix, already?!

Walmart. Yes, you heard me. There should be one very powerful buyer that can pressure healthcare providers to lower their prices so they operate on a razor thin margin in exchange for the guarantee of a large consumer base. This buyer can then pass on most of the savings to the consumer. Best of all, the healthcare-Walmart can offer both a la carte services and insurance, and match the price of any competitor! A proposal of this nature might be more popular than the current health care bill. It could even have the slogan “if it doesn’t save you money, you don’t have to use it.”

Walmart’s savings are a consequence of large distribution channels that take advantage of economies of scale, and monopsony power over suppliers. A public insurance program may be able to achieve similar benefits in terms of distributing healthcare, but it would be unnecessary to force lower prices on providers; we don’t want to accidentally disrupt the supply of doctors, or stop private companies from building more hospitals.

Don’t get me wrong! I’m on your side, and support a single-payer insurance system. But in my opinion the majority of savings would stem from eliminating private insurance companies by providing consumers with a public alternative. Private insurance companies are obligated to calculate risk in a manner that benefits their investors, and not their customers. If consumers had the option of buying into a non-profit system that was capable of operating on the same scale as the BlueCrosses of the world, then we would likely see a voluntary shift towards the public alternative. I think this is why Congress stuck us with a mandate instead of a government alternative. The industry simply refused to compete with a government chartered rival.

You’re absolutely right that the for-profit model of health insurance contributes to our bloated healthcare costs.

However, my understanding is that the profit margins for insurance providers isn’t incredibly high either. The difference between US health care costs and those of other countries has been observed to be primarily due to much higher drug costs and higher prices set by health care providers. That’s the trouble with having many insurance companies that don’t have monopsony power — the sellers can negotiate for more money. I’m not sure these things would disrupt the supply of doctors or stop anyone building hospitals, but this is pure speculation. Just like I would speculate kids would continue to aspire to be football players, even if the market only supported salaries up to $1 million/year instead of whatever the max is these days.

Perhaps you’re right. According to the above graph, insurance overhead doesn’t add more than 6%, pharmaceuticals 10%, and private practices account for a whopping 20%. It seems to me that the distinctive attribute of the American healthcare system is the ability for wealthy patrons to buy whatever services they require, whether essential or not; I’m assuming these services are performed by smaller specialized clinics. Conservatives may argue that this gives us a technological advantage over other countries, as the most expensive and high-tech procedures are only affordable for the super-rich (like cellphones in their infancy). But this argument does little to benefit today’s market and is similar in scope to the stranglehold pharmaceuticals have over drug patents, in that it credits innovation over utility. I doubt that future forms of plastic surgery can provide tangible benefits to those who have a present need for preventive healthcare.

It may be best, as you say, to squeeze out private practices (and smuggle drugs from Mexico!). But I doubt that ObamaRomneyCare will do anything to improve the situation. We’ll probably still spend 16% of our gross national product on healthcare, while other nation-states with equivalent life expectancy get by on 8%.

ObamaRomneyCare is hopeless, and I’m no advocate of it. There’s really no sense in it if it doesn’t have a public option. My proposal doesn’t force these private cutting edge clinics out of existence, it just means that people will probably have to pay exorbitant prices out of pocket for them. I think that’s a better model than the one we have now. Basic healthcare for everyone, and the super-rich can pay for innovation and be the guinea pigs until new techniques and procedures become more commonplace and affordable.